Hard Money Loan Questions

[Josh West]

I have been looking into how hard money will work with a BRRRR deal and have watched videos of people using none of their own money after everything is all said and done, which is the point right? I included an example scenario that I have been thinking about and would love help narrowing down any mistakes so I can better understand everything. Maybe I am overthinking this but I feel like it would be better to just save up enough money to do a deal like this alone since it seems like you'll be spending the money either way.

Example scenario: Buy property for 500k, 20% down with 50k for rehab over 6 months until it is able to be refinanced. Lender wants 10% return so they would need to be paid back a total of $179,428 after the 6 months if they also covered the mortgage since no rent would be coming in due to 100% vacancy. Let's say the ARV is $550,000 since 50k of rehab was put into the property. The refi will be 70% of the ARV, so $385,000 for the new mortgage. This is where I get confused and would like help to determine the equity in the property. From what I think I understand, you would have 50k in equity but in order to pay back the lender, you would need to put in $129,428 of your own money, $179,428-50k equity.

Questions: 

Is it normal for the hard money lender cover the mortgage cost for those 6 months? I understand the ARV aries by location but I can't seem to understand how it would appraise for enough money to be able to pay back the lender without putting any or very little of your own money into the deal. Does this usually work if the loan is conventional and the downpayment is is significantly less so the amount you have to pay back could be covered by the refi? Is this usually reserved for off market deals where the price of the property is significantly less than market rat so the ARV is a higher percentage of the purchase price?

Thank you for any help! 

[Rene Owczarski]

@Josh West Just looking at your example, I think the confusion is that there is no equity in your deal. In the example, the house is worth $550k ARV, but you bought it for $500k, and had to put $50k into rehab. That equals $0.00 profit for you. All your getting back would be the original amount of money you put in, and no profit.

If that example had been:
ARV $550k x 70% = $385k - $50k rehab = $335k buy price.
Then you would have $165k in equity in the deal (the 30% slice).

Make sense?